As businesses continue to globalize and modernize in the present day, many are incorporating more technology and non-physical assets into their companies. As a result, firms are coming to terms with the fact that intellectual property (IP) increasingly comprises the bulk of their present-day value.
How to Value My Company’s Intellectual Property
- How to Value My Company’s Intellectual Property
The Importance of Knowing Your IP’s Value
Businesses continue to globalize and modernize in the present day. Thus, many are incorporating more technology and non-physical assets into their companies. As a result, firms are coming to terms with the fact that intellectual property (IP) increasingly comprises the bulk of their present-day value.
IP assets are intangible in nature. Thus, it is often more difficult to obtain an effective and accurate appraisal of firms that engage in such transactions. But because IP often represents the most valuable assets of a business, it is vital that business owners obtain an accurate appraisal by qualified experts like Business Appraisal FL|GA (BA F|G).
This article offers insight into what IP is and how valuation methods occur for such assets.
What is an Intellectual Property Valuation, and Why is it Important?
IP is an intangible asset and, as such, belongs to the non-physical property of a business. These assets often include copyrights, patents, trade secrets, and trademarks that hold value for a business. However, such products or services are non-physical, and regulations and laws do protect them from unauthorized use by other individuals.
Business owners take an interest in determining the monetary value of their IP. And business as a whole, may seek an external valuation. An IP appraisal helps to assess such value.
Assessing the true market value of one’s IP assets is important. This is because the global service economy has especially shifted toward a more service- and technology-oriented economy. Just a few decades ago, the greatest value of a company might have existed in its inventory, real estate, or machinery. Today, on the other hand, the most valuable assets of a business may be its technology and IP.
Establishing IP’s Value is Crucial
Consequently, establishing the value of a business’ IP is crucial for those interested in determining sales, strategies, or transfer transactions for IP assets. Additionally, an appraisal of non-physical assets is necessary for businesses seeking to engage in merger and acquisition (M&A) transactions. Moreover, there will be a need for an IP valuation if you seek to enforce your intellectual property valuation rights, manage the asset, or engage in external financial processes.
Regardless of the specific reason for obtaining a valuation of IP assets, the value of such assets often originates from the fact that the asset owner can exclude competitors from using it.
That value tends to grow if the IP asset can generate increased economic benefits for its owner and amplify the value of other assets that might be associated with it.
But IP assets also convey future economic benefits to the owner and user. The value of such assets tends to grow as the IP is integrated into a business, sold to a third party, or reduces the threat of future substitutes. Thus, obtaining a proper valuation from experts like BA F|G of your IP assets is vital. How? So you can strategize your enterprise and the impact it could have on your business’s future.
What Methods are used to conduct Intellectual Property Valuations?
Although IP valuations are complicated, three common approaches are usually undertaken to conduct such services. Those methods include the Income Method, Market Method, and Cost Method.
The most effective method for your IP valuation entirely depends on the nature of your asset, your goals in obtaining a valuation, and data availability. Regardless of the method employed, the valuation process will involve in-depth analyses of the IP asset. And it will require a great understanding of the market, industry, and business impacted by the asset.
1. Income Method
The most popular method used by analysts to understand the true value of an IP asset is the Income Method. Through this approach, the IP asset is appraised based on how much economic income it is expected to create, adjusted to the present-day value.
This is an effective method for IP assets that experience positive cash flows and whose cash flows can be easily estimated or accessed.
2. Market Method
With this method, an analyst will use the market and comparables to gauge the value of the IP. The price paid for transferring rights to a similar, third-party IP asset is analyzed to determine the market price. This is a simple and straightforward way to conduct the valuation, which can be helpful if you are interested in establishing royalties and gauging tax information about your business.
3. Cost Method
The Cost Method calculates the cost of a similar or identical IP asset. This method is particularly well suited when the IP asset can be easily reproduced or if the economic benefits are not easily quantifiable.
IP Valuation Conclusion
Conducting IP valuations is difficult and overwhelming if done incorrectly. Expert qualifiers like BA F|G can help you determine the true worth of your intangible assets. We are ready to discuss your particular situation and our services. Even Small businesses can have valuable IP.
Regardless of your reason for obtaining a valuation of your IP assets, BA F|G is eager to discuss your unique IP situation and how our services will help set your company up for success in today’s globalized economy.